How to Get the Most Out of Mortgage Rewards

Borrowers who get a $2.5 million mortgage from CapitalOne can fly away, literally, with one million air-travel miles, enough to circle the earth 40 times. But is it worth it?

From air miles to rebates to lower interest rates, some lenders offer a variety of rewards to customers who get or refinance a home loan.

In the CapitalOne promotion, Venture and Venture One credit-cardholders earn air travel miles if they purchase or refinance their home before March 31. The exact number of miles earned depends on the loan amount and is capped at 1 million miles. A borrower getting a $417,000 loan, the maximum amount for a government-backed loan in most parts of the country, would get 100,000 miles. A jumbo-loan borrower getting a loan over $1.5 million would earn 1 million miles, the company's limit.

But before borrowers fantasize about faraway vacations, they should crunch all the numbers, from interest rate to origination fees to airfare cost and compare to what other lenders offer without the perk, says Odysseas Papadimitriou, CEO of credit-monitoring website "Consider how long you are going to stay in the home, and how much it's going to cost me to get this loan versus another loan that doesn't have these rewards," he adds.

Still, if the lender offers the best interest rate and competitive fees, the perk can be "gravy," Mr. Papadimitriou says. The point is that consumers should resist the urge to let the lure of a short-term reward dazzle them into taking a loan that will cost more in the long run, he says.

Last year, Chase Bank offered a mortgage cash-back program in which borrowers could earn 1% of their scheduled principal and interest payment annually for the life of the loan, up to $500 a year. A number of conditions applied, including a requirement that borrowers' mortgage payments are automatically withdrawn from their Chase checking account. The rebate could be used to pay down the loan principal or deposited into the customer's bank account for other uses.

Wells Fargo offers a "home rebate" feature to its rewards-earning credit cards that lets cardholders apply points toward mortgage and home-equity-loan payments. Based on $30,000 in annual spending on the card, a mortgage rate of 3.5% and a term of 30 years, a Wells Fargo customer with a $500,000 mortgage could pay off the loan six months faster and save $15,503 on interest, according to Wells Fargo. For a $1 million mortgage, customers would pay off their mortgage three months faster and save $15,655 on interest.

Borrowers who also bring major assets to Bank of America can see one-eighth to one-fourth of a percentage point subtracted from their mortgage rate. Among the conditions: The borrower must transfer more than $250,000 into a regular or brokerage account before the loan closing.

That's substantial savings over the lifetime of the loan rather than a one-time reward, says Dave Steckel, lending products and pricing executive at Bank of America. That quantity of bank holdings qualifies the borrower to "preferred rewards" status, which means relationship discounts on other bank products, such as home-equity lines of credit, car loans, ATM fees or a refinance or second mortgage, he adds.

Some borrowers may be tempted to earn big rewards by making mortgage payments with plastic. Not all lenders allow credit-card mortgage payments, and be sure to check the fine print for lenders that do.

Also some cards may charge a processing fee for mortgage payments. If the fee percentage exceeds the percentage cash back or points benefit of the rewards program, borrowers may actually be spending more.

Other cards may code the transaction as a "cash advance." Unlike a straight credit-card purchase, cash advances typically have higher interest rates, and the interest starts accruing the second that the mortgage payment is made.

And don't forget, a borrower could rack up substantial credit-card balances at a much higher interest rate than the typical mortgage if that credit-card bill isn't paid in full each month.